from the well,-look-at-that dept

Back when this hype about "cybersecurity" and "cyberwar" first started to hit the mainstream (early on, "cyberwar" was more common, but lately people focus on "cybersecurity"), we had an article which suggested that much of this really seemed to be about scaring up a panic for the sake of throwing money at defense contractors who wanted to charge crazy huge sums for "helping" with cybersecurity. And, as we noted, that push was leading to hundreds of millions of dollars in government contracts. It appears that, with cybersecurity FUD only getting bigger and bigger, the folks who are making out like bandits are all those defense contractors who are jumping in to fan the flames of FUD... and then taking our taxpayer money to "fix" the problem.

In that link above, they talk about Lockheed and Raytheon signing agreements with Homeland Security in which they get to "help" the government out by scanning email and other info collected by the NSA.

Under the program, critical infrastructure companies will pay the providers, which will use the classified information to block attacks before they reach the customers. The classified information involves suspect Web addresses, strings of characters, email sender names and the like.

None of this necessarily means that online attacks aren't a real threat... but I'd feel a lot more comfortable about where things were heading if there weren't a whole bunch of defense contractors gleefully rubbing their hands together as they scoop up more and more contracts while the FUD keeps spreading.

from the good-points dept

With the passing of former Senator and Presidential candidate George McGovern this weekend, the Wall Street Journal reran a 1992 column he wrote about how much he learned from trying to start a business after he'd left politics. TheMoneyIllusion has an excerpt as well:

In 1988, I invested most of the earnings from this lecture circuit acquiring the leasehold on Connecticut’s Stratford Inn. Hotels, inns and restaurants have always held a special fascination for me. The Stratford Inn promised the realization of a longtime dream to own a combination hotel, restaurant and public conference facility — complete with an experienced manager and staff.

In retrospect, I wish I had known more about the hazards and difficulties of such a business, especially during a recession of the kind that hit New England just as I was acquiring the inn’s 43-year leasehold. I also wish that during the years I was in public office, I had had this firsthand experience about the difficulties business people face every day. That knowledge would have made me a better U.S. senator and a more understanding presidential contender.

He goes on to talk about how all sorts of crazy regulations, that may have appeared to make sense to the politicians passing them, were actually serving to create a huge headache for businesses -- often because whoever is writing the laws has no idea what they're talking about:

In short, “one-size-fits-all” rules for business ignore the reality of the marketplace. And setting thresholds for regulatory guidelines at artificial levels — e.g., 50 employees or more, $500,000 in sales — takes no account of other realities, such as profit margins, labor intensive vs. capital intensive businesses, and local market economics.

The problem we face as legislators is: Where do we set the bar so that it is not too high to clear? I don’t have the answer. I do know that we need to start raising these questions more often.

When we talk about Washington DC (and other governments) passing regulations that impact how entrepreneurs and innovators build great new companies, this is the kind of thing that we're worried about. The vast majority of elected officials really have no idea. They pass rules and regulations that sound good and are meant to serve a good purpose, but they rarely take into account the consequences of the regulations they pass or how they'll impact how companies act. This is not to say that there shouldn't be regulations, but that regulators need (a) a much better understanding of business and (b) they need to be aware that the impact of regulations can be stifling. I've never understood why every piece of legislation that will impact companies doesn't come with specific metrics to determine if it's a success and a mandatory review period / sunset provision, in which an independent board is tasked with determining if the law accomplished what it set out to do, and if there were any costly side effects or unintended consequences.

McGovern seemed to discover all that after his political career was over, but with his passing, perhaps we can encourage current politicians to recognize just how big an issue this is today. Especially when we rely on so many new technologies, innovations and services on a daily basis.

from the they-really-get-it dept

Although DMCA takedown notices figure quite frequently here on Techdirt -- especially abusive ones that use the system to remove material covered by fair use or even in the public domain -- the industry that has grown up around them remains somewhat in the shadows. That's what makes the site with the self-explanatory name "Takedown Piracy", found via the 1709 Blog, so fascinating: it offers a glimpse of the world of DMCA takedowns as seen from the other side.

As you might expect, Takedown Piracy sends DMCA notices to sites that it believes are holding copyrighted material belonging to its clients. But what's surprising is the scale of the takedown: one recent post on the site talks of "hammering these sites with DMCAs", and later goes on to give an idea of what that entails:

Once word got around that [the #3 adult torrent site] Cheggit was complying, myself and at least one other removal company began monitoring the site daily resulting in 100s if not 1000s of torrents were being reported every day.

Since the site was "complying", that presumably meant 1000s of torrents were also being taken down every day. Making extra work in this way lies at the heart of the company's service, as this helpful FAQ explains:

Piracy is rampant and can often seem like you’re playing Whack-A-Mole. However, in this case you’re not just hitting the moles with rubber mallets but we’re dropping napalm bombs on the whole field. Part of the success of piracy sites can be attributed to them offering a superior surfing experience for users. As long as copyright owners do nothing, that experience will continue to be superior. We interfere with that experience by introducing frustration to the mix. Whether it’s the site owner frustrated at the amount of time he/she spends on removing content or the frustration the downloader feels at not being able to find free content, frustration is a very valuable tool to use in combating piracy, and we excel at that.

What's fascinating here is the recognition that piracy sites offer a "superior experience for users" – compared to the official offerings. That confirms other evidence that what people who use unauthorized sources are really seeking is not free content -- because often they must pay to access them -- but the extra convenience those sites offer.

Which means, of course, that it is the copyright industries themselves, with their failure to provide that convenience, that are helping to drive potential customers to alternatives. It also implies that if the content companies managed to make their offerings competitive with pirate sites -- that is, even more convenient -- they would win back much of that lost business.

Significantly, that is what the Takedown Piracy service seems to advocate:

While we’re doing our thing, you’re able to adapt your business to the new digital world and have a chance for your new distribution models to flourish.

If even an avowed enemy of pirates can see what's needed, why can't the copyright companies themselves?

from the but,-of-course dept

One of the key examples of what happens when you have bad, overly draconian copyright laws that burden companies falsely accused of infringement is Veoh. We've talked about them a bunch in the past, but Dmitry Shapiro, who had been CEO of the company, has written up a great (though depressing) first-hand explanation of how bad copyright law kills good companies. He talks about having the vision for an online video service (which he came up with before YouTube existed, though both happened at about the same time), how he built up the product, raised a bunch of money (including from former Disney CEO Michael Eisner), and put together a really good product. On top of that, to help the big entertainment companies feel comfortable, they installed audio filtering technologies -- even though such things are not (yet) required by law. And yet, the company was still sued by Universal Music, who insisted that Veoh was a "pirate site."

Of course, as we've noted, Veoh has won every bit of their lawsuits. The latest ruling came in December, where an appeals court, once again, said that Veoh was perfectly legal. It complied with the DMCA and actually went above and beyond what the law required (such as by using those filters). Of course, Veoh is also dead. The costs of the lawsuit really were too much for a young company struggling to build a good product and compete in the marketplace.

As you can imagine the lawsuit dramatically impacted our ability to operate the company. The financial drain of millions of dollars going to litigation took away our power to compete, countless hours of executive's time was spent in dealing with various responsibilities of litigation, and employee morale was deeply impacted with a constant threat of shutdown. Trying to convince new employees to join the company in spite of this was extremely challenging. To make sure that our money supply was cut off, in an unprecedented move, UMG sued not only the company, but our investors (Michael Eisner, Art Bilger, and Spark Capital) personally. This move raised lot of eyebrows in the legal community, and at one point was thrown out by a judge, only to continue to be appealed and litigated by UMG. This completely choked off all of our financial oxygen, as trying to convince investors to invest with the threat of them personally being sued is insurmountable.

Even after winning the initial lawsuit, UMG just piled on the appeals, and it made it impossible for the company to survive:

With the appeal looming, financing continued to be choked off for us, and in April 2010 we had to sell the company in a fire sale to a small startup. The company that we had built, that was once valued at over $130 Million was gone. Along with it went the livelihoods of over 120 people and their families, $70 million of money entrusted to us by investors, and a big part of me. I had sacrificed so much to live the life of an entrepreneur. My marriage couldn't stand the strain of this lifestyle and ended in 2009, and while all of this was going on, my father was dying. Instead of spending time with him at his bedside, I was sitting in depositions with lawyers, and stressing over the lawsuit. He died July 13 2009, two months before we won the original judgement on the lawsuit. He would have been proud of me for following through with the fight. I felt so beaten down after this experience, that I couldn't imagine going back to being an entrepreneur. I was disenchanted, disgusted by the system that would allow these kinds of behaviors to go on, and it is not until recently that I have been able to come up to bat again.

Shapiro posted this to explain why he's against SOPA/PIPA, but the amazing thing is that the lawsuit is still going on. Even after that ruling in December that totally eviscerated UMG's arguments and made it abundantly clear that Veoh had been a perfectly legal operation destroyed by a bogus lawsuit, UMG is trying again. Embedded below is the petition that UMG recently filed in the appeals court, asking for an en banc rehearing (appeals courts usually hear cases with a three-judge panel, but parties can later ask for a rehearing with all of the judges in the court -- which is an en banc rehearing).

I'm not going to go through the filing in detail. It's more of the same from UMG. Basically, UMG wants to pretend that the DMCA requires certain actions that it clearly does not. Every judge so far has told UMG this, but it won't give up. And, more importantly, it won't give up even though Veoh is long since dead. Considering that UMG and the rest of the legacy recording business keep complaining that they're not making any money any more, the fact that they're choosing to keep suing a company they already killed years ago really says something, doesn't it?

The truth is that UMG is continuing the lawsuit for one reason: because it's hoping and praying that some court will magically believe UMG's made up interpretation of copyright law. If that happens, it will make it much easier for UMG to kill other legit sites that it doesn't like. It will also allow UMG to pretend that Veoh was a "rogue" site that needed to be killed, rather than a successful legitimate business that was killed via a bogus lawsuit.

from the maybe? dept

At a recent campaign stop, a small business owner asked Mitt Romney for his opinion on SOPA, noting that it would likely kill her business. Romney responded without discussing the bills specifically, but said that he's totally against bills like this that just focus on "stopping bad acts," and that he wants politicians to focus on encouraging businesses to do good things.

I don't know if that's an unqualified rejection of SOPA/PIPA, but it sure comes close. He's talking about out-of-touch regulators who've spent their lives in DC, rather than in business, and "all they think about is how to stop business and stop the bad guys," (which does, in fact, describe SOPA/PIPA) but, Romney says, this is just a sign that "they don't like business very much." Indeed. SOPA/PIPA are very much bills that focus solely on trying to "stop bad guys," without taking into account the massive amount of harm that will be done to the good guys -- the companies who are innovating and are creating jobs. Given that he doesn't really discuss specifics, and just talks in generalities about bad regulations and harming business, it's possible that he has no idea what SOPA/PIPA are about, and gave a Generic Politicians'(tm) answer to a question. But hopefully more people will hold him to this, and get him to confirm that he's against these bills.

Either way, with more people asking about SOPA/PIPA, it's definitely starting to become a campaign issue...

from the can't-make-money-this-way dept

We've pointed out many, many times in the past that the absolute best (and perhaps only) way to really get people to move away from infringing is to offer better, cheaper, more convenient and feature-filled legitimate services. But those are pretty difficult to come by -- in part because of the insane demands by the legacy entertainment industry players. Why do you think it took over two years for Spotify to finally come to the US? Because the labels demands were crazy and unsustainable. Michael Robertson is now revealing some of those demands, but sums it up best in his first paragraph:

Imagine a new hot-dog selling venture. Let’s also say there’s only one supplier to purchase hot dogs from. Instead of simply charging a fixed price for hot dogs, that supplier demands the HIGHER of the following: $1 per hot dog sold OR $2 for every customer served OR 50 percent of all revenues for anything sold in the store. In addition, the supplier requires a two-year minimum order of 300 hot dogs per day, payable all in advance. If fewer hot dogs are sold, there is no refund. If more than 300 hot dogs are sold each day, payments to the supplier are generated by calculating $2 per customer or 50 percent of total revenues, so an additional payment is due to the supplier. After the first two years, the supplier can unilaterally adjust any of the pricing terms and the shop can never switch suppliers.

Doesn't seem like a particularly good business. When you hear of deals like that, it's kind of amazing that any of these businesses exist at all.

from the shouldn't-congress-wonder-why-they-need-sopa/pipa? dept

The Congressional Research Service is the research arm of Congress that is widely respected as presenting (non-partisan) high quality, extremely credible research for folks in Congress. In fact, the quality is so good, that many are annoyed that the output of their research, despite being public domain, is rarely made available to the public. The only way that information is released is if the elected official who requested it decides to release it. Thankfully, some of our elected officials do just that.

Recently, Senator Ron Wyden asked CRS if it could explore the state of the movie industry today as compared to 1995 on a variety of different criteria. You can read the full report embedded below, but here are a few key points. First off, despite the industry's regular attempt to play up its contribution to GDP and employment, the report found that the combined GDP contribution of both the "motion picture and sound recording" industries was a whopping 0.4% in 2009. Back in 1995... it was also 0.4%.

As for employment, Hollywood loves to claim that it employs millions of people. One popular number is that 19 million people have jobs in "IP-intensive industries." Of course, we've discussed how misleading a term that is, as they lump in all sorts of jobs that have absolutely nothing whatsoever to do with copyright. So, how many people are actually employed in the movie industry? Not that many. 374,000 in 2010 -- and that includes both full and part time workers. And that's really not much different from the 392,000 in 1998. So it's not like the industry has been losing employees in droves as they imply. Furthermore, that's only slightly more than the number of jobs that Facebook's app platform alone is estimated to have created. Hell, we've seen reports that have said eBay alone created 750,000 small business jobs. Perhaps Hollywood isn't as big a part of the economy as it likes to claim.

Similarly exaggerated? Its dire straits. Let's take a look at box office revenue:

Also interesting is the look at CEO pay at the major movie studios, then and now. It seems that Disney's CEO (Robert Iger) made $29,617,964 in 2010, compared to Michael Eisner's mere $10 million back in 1994. Time Warner? CEO Jeffrey Bewkes made $26,303,071 in 2010, while his predecessor Gerald Levin made $5 million in 1994. CRS apparently couldn't find past data on the other studios, but in the present, it looks like their execs are all cashing in. News Corps' Rupert Murdoch made $33,292,753. Viacom's Chairman, Sumner Redstone, made $15,033,630, while its CEO Philippe Dauman famously made $84,515,308. NBC Universal was still under GE in 2010, whose CEO, Jeffrey Immelt, brought in $21,428,765. Then there's Sony, whose CEO was the pauper of the bunch, having his salary and bonus cut to a mere $4.3 million due to "financial problems stemming from the Japanese earthquake and tsunami."

It doesn't sound like things are that bad these days in Hollywood. So why do we need massive legal changes again?

from the unauthorized-reproduction-of-food dept

Aaron DeOliveira was the first of a few of you to send over Kevin Carson's amusing re-imagining of a few Biblical stories if they were written in a world with similar laws to what we have today. Creating food and wine out of nothing? Infringement!

After reportedly feeding a crowd of five thousand with five loaves and two fishes, Jesus Christ of Nazareth was recently served with formal legal notice from industry trade associations, demanding that he cease and desist from what they charge is an illegal food-sharing operation under the terms of the Miracle Millennium Anti-Replication Act (MMAA).

Miracle-working rabbis like Mr. Christ, and their alleged property rights infringements, have been the center of controversy in recent years. They’re the subject of a public education campaign by the Foodstuffs Producers Association of Galilee and Judea. Loaves and fishes producers argue that unauthorized replication of food, since it deprives them of revenues to which they are entitled, amounts to stealing. Sympathetic rabbis in synagogues throughout Palestine are reading FPAGJ public service announcements, aimed at countering public perceptions that “everybody does it” and “it’s just a little thing,” to their flocks: “Don’t bakers and fishermen deserve to be paid?” Many Torah schools have adopted FPAGJ “anti-foodlifting” curricula.

There are some more such examples, including concerns about turning water into wine and healing people without a physician's license. Good stuff. Of course, as was pointed out in the comments to that post, others have come up with similar ideas, including this Nerfnow comic, in which a bread seller complains that "bread piracy will kill the bread industry."

The thing is, there is a flipside to all of this. Just as people talk about the ability to create new things out of nothing or through some sort of magic replication as being "a miracle," it does seem worth noting that the digital era, and the fact that we've turned a ton of goods from scarce goods into abundant goods, is something of a miracle for society. It's really still quite stunning to think that so many people don't recognize how abundance is a good thing for the economy. The only people it hurts are those who continue to rely on business models that believe the abundant good is still scarce. Everyone else is better off.

from the face-facts dept

Canadian patent troll Wi-LAN has a long history as trying to tax any and all wireless innovation with patent threats. With the news that it's suing a bunch more companies -- including Apple, HTC, HP, Dell, Sierra Wireless and others, the company is merely cementing its reputation as a taxer of innovation, rather than a builder of anything useful. The company doesn't seem shy about this. As the link above notes, the company seems to brag about this "business" strategy:

What's more, Skippen said he believes "that our past investment in litigation could generate a significant return in the future. Our record revenues and earnings in the first quarter signal the beginning of that return to WiLAN and its shareholders."

It's hard to read such a comment and not feel sickened by the pure net loss on the economy and innovation from such leeches. Any company whose business model focuses on litigation is not contributing positively to society and innovation. There are times to file a lawsuit, but when that becomes central to your business model, something is broken.

The very core of a functioning capitalist system is that companies make transactions in which there's a buyer and a seller, and both sides come away from the transaction feeling better off. The buyer values the product or service more than the money paid, and the seller values the money more. That's good business. Any time you involve a lawsuit to force someone to pay, you're doing exactly the opposite of that and you're setting up a system that is not working to benefit everyone, but is actively using the force of the courts to try to force a company to "buy" something it has no interest in buying. It's not good for the economy and it's not good for innovation.

from the seems-fine-to-me dept

Michel Gondry spoke at SXSW to a packed house; it was fantastic to see one of my favorite directors speak about his creative process. During the talk, he mentioned a project he did where fans could buy portraits of themselves, sketched by Gondry himself, for only $20. He did about 1,000 of these portraits before he ended the deal, saying that while some portraits took only 2 minutes, he started getting fancier and fancier as time progressed, and eventually he didn't think that was a good business to continue it. When he said that, a collective, sad sigh was felt across the conference room, since I'm sure I was not the only one in the room who wanted a hand-drawn Michel Gondry portrait -- and if $20 wasn't the right price to make sense, business-wise, surely there was an appropriate price point that would make sense (and, in looking at his site, it appears that he raised the price to $99.95 with a copy of his DVD). Now, while it is true that Gondry is a famous movie director, surely a few hundred dollars for minutes of work is enough to get him interested, especially when he considers that this portrait further serves to endear him more to his most passionate fans, who are incredibly appreciative that he would ever even think to offer such a deal:

It's amazing enough that Michel has the time to draw thousands of portraits a week amidst his incredibly busy schedule and his "Green Hornet" workload. Hopefully this commitment will urge other filmmakers to devote similar generosity towards their fanbases...

So, contrary to what Gondry thought, his portrait offer most certainly made good business sense and was a great example of an RtB deal, since it was soaked in his charmingly quirky artistic personality. Then again, perhaps another example of Gondry's unique understanding of the business world is with this strange notice that he sent out to the purchasers of the portraits, sometimes well after they had purchased the image, telling them they could not resell the image ever.

"By placing your sketch order, you hereby acknowledge... that the sketch is for your personal use only and you shall not have the right to sell the sketch for any commercial purpose whatsoever."

To ask this of his truest fans (especially after they have commissioned a sketch) is not only most likely unenforceable legally (case law here is still a bit messy, but courts have said that you can't just give up your right of first sale based on one side's declaration), it also serves to sour the goodwill and affection that Gondry's true fans have bestowed upon him. Now, that's bad business.